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Date: 2024-07-24 Page is: DBtxt001.php txt00002489

Country ... Spain
Money Profit Capitalism Gone Wrong

Spain economy nears moment of truth

COMMENTARY
The way decisions are made by modern bankers borders on the insane. I was interviewed for a quite senior management position in an American Bank in the early 1970s ... the job would have been to figure out better ways to make the bank's balance sheet more profitable. I did not get the job, nor would the job have been a good fit for me anyway. Instead I went on to become a fairly successful executive in operational business. Over the years I have watched banks make one stupid strategic decicion after another building profits for their executive class and investors while gutting the society and the economy that they are meant to be serving. In response to the blog post below, I have written the following comment.

The modern monetary economy is nothing more than a 'construct' that has moved further and further away from a real economy where economic activity and the use of resources is associated with the satisfaction of all the real needs for a productive and happy society. The capitalist market economy with its singular focus on business profit, GDP growth and stock market indexes completely fails to allocate resources where they are most needed, merely to where they are most profitable for investors. The modern monetary economy is in deep trouble, but the real economy has huge potential if only we change the way progress and performance are measured. A better quality of life is possible when capital is allocated where it will do useful things! Peter Burgess TrueValueMetrics
When I look at political leadership, academic leadership, corporate leadership, union leadership ... essentially all leadership classes associated with my generation ... I am appalled. But all is not lost. The scientists and the associated technology are amazing, and there is no reason at all why the future of society and the economy should not be way better than it has ever been in history. I argue that the way progress and performance is measured is a key reason for leadership failure. Leaders are trying to win using the wrong scoring system. Change the
Peter Burgess

Spain economy nears moment of truth ... There are real concerns in Spain.

I'm temporarily working with a Madrid-based Englishman who says he has withdrawn everything but living expenses from his Spanish bank account. And it's not just expats doing it.

Some 100bn euros were reportedly withdrawn from Spanish banks by private depositors in March and April alone, equivalent to 10 per cent of this country's gross domestic product (GDP).

Now, that's a lot of cash currently stuffed into suitcases and under mattresses.

And with the financial markets busy shutting the door on Spanish sovereign borrowing - the yield, or interest rate, on 10-year Spanish government bonds is very close to the levels that forced Ireland, Portugal and Greece to accept bailouts - it seems no one wants to get their hands dirty holding Spanish assets.

Well, almost no one.

I've met a man, Angel Garcia Limon, who bought an apartment at a very low price two months ago in a 'ghost' development just outside Madrid. He and his wife appear to be living happily there. The couple is retired and, truly, at $90 000, their two-bed, two-bath home was a snip. It looks well built; nice finish.

I give them six months.

There are no shops in the development, no doctor or medical centre, a train stop was built but the trains don't stop there.

Most of the neighbouring flats are vacant, as they have been since 2007 when the developer handed his sizeable loans back to the banks in the form of many hundreds of buyer-less properties. Now, the banks are saddled with the bad debt, billions of euros-worth, in developments just like this one all over Spain.

Failed loans

It's been reported that Spanish banks are carrying over $270bn worth of failed property loans, the product of extremely reckless lending to greedy developers during the boom years of cheap credit after Spain joined the euro.

That's what is currently weighing down on Spain as the speculators bet against its chances of surviving without a bailout from the dreaded troika, the 'men in black', the EU, ECB and IMF.

So here's where we are, in a nutshell: Spain's banks are all but bust, the government hasn't got the many tens of billions required to sort them out, the financial markets are charging unaffordable rates of interest to go on lending Spain the money to do it, and to service its own bills.

Oh, and the economy is in recession for the second time in three years - one in four Spaniards hasn't got a job, and in case you had any hopes for the next generation, more than half of those under 25 are out of work.

You might as well paint the words 'BAILOUT', 'PAIN' and 'THE END OF TIME' on the side of a hot air balloon and launch it over the Santiago Bernabeu stadium during a Real Madrid home game.

Except that, as Cristobal Montoro, Spain's treasury minister, pointed out in a radio interview on Tuesday, it's 'technically impossible' to bail out Spain.

He didn't explain what he meant, but a fair guess is that he was suggesting it would be, simply, too expensive.

He may not be wrong.

Moment of truth

This is an economy much larger than Ireland, Portugal and Greece put together. Conservative estimates are that if Spain were to find itself locked out of the bond markets - which is where things are heading - a bailout would cost 350bn euros.

Less charitable estimates rise to the mid-400s.

Now there is only 500bn euros available in the soon-to-be-inaugurated European Stability Mechanism (ESM), otherwise known as the rescue-pot-to-end-all-rescue-pots.

What an inauguration that would be: Spain on the ropes, the rescue pot almost empty, the markets turning on even-larger Italy after Spain, or France.

So, in Spain, Europe's leaders could soon be facing a moment of truth.

And there are signs the big powers may be getting the point.

Little squeaky noises from Berlin suggest Germany may finally be willing to step away from the dithering dictats, posturing, and patchwork solutions that have characterised the past two years of euro emergency room procedures and consider, finally, a pan-European safety net that might actually save the single currency.

A eurobond perhaps?

There's a good idea: the rich euro countries guaranteeing the debts of the poor. Hmm, something like a eurobond, perhaps. Except, nein, we won't call it a eurobond, Nor will it have all the functions of a eurobond. And we won't be responsible for it alone. Oh no ...


Jonah Hull ... Jonah Hull, based in London, covers stories around the world.
June 6, 2012 - 07:13
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